Correlation Between Teijin and Sumitomo Corp

Can any of the company-specific risk be diversified away by investing in both Teijin and Sumitomo Corp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Teijin and Sumitomo Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Teijin and Sumitomo Corp ADR, you can compare the effects of market volatilities on Teijin and Sumitomo Corp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Teijin with a short position of Sumitomo Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teijin and Sumitomo Corp.

Diversification Opportunities for Teijin and Sumitomo Corp

0.8

Correlation Coefficient

Teijin  Sumitomo Corp

Very poor diversification

The 3 months correlation between Teijin and Sumitomo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Teijin and Sumitomo Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Corp ADR and Teijin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Teijin are associated (or correlated) with Sumitomo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Corp ADR has no effect on the direction of Teijin i.e., Teijin and Sumitomo Corp go up and down completely randomly.

Pair Corralation between Teijin and Sumitomo Corp

Assuming the 90 days horizon Teijin is expected to under-perform the Sumitomo Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Teijin is 1.07 times less risky than Sumitomo Corp. The pink sheet trades about -0.24 of its potential returns per unit of risk. The Sumitomo Corp ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,111  in Sumitomo Corp ADR on September 3, 2024 and sell it today you would earn a total of  35.00  from holding Sumitomo Corp ADR or generate 1.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Teijin  vs.  Sumitomo Corp ADR

Teijin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teijin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sumitomo Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Teijin and Sumitomo Corp

The main advantage of trading using opposite Teijin and Sumitomo Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teijin position performs unexpectedly, Sumitomo Corp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Sumitomo Corp will offset losses from the drop in Sumitomo Corp's long position.

The idea behind Teijin and Sumitomo Corp ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..